US INFLATION STABLE WITH WAR IN IRAN LIKELY TO INCREASE PRESSURE ON PRICES

The inflation rate in the United States remained stable at 2.4 per cent in February, coinciding with the onset of conflict in the Middle East that has raised concerns about escalating energy costs. The Consumer Prices Index (CPI) figures released by the US Department of Labor indicate that the year-on-year increase in inflation remained consistent with January’s figures. Core inflation, which excludes volatile food and energy prices, was recorded at 2.5 per cent, aligning with economists’ forecasts.

Despite a downward trend in inflation in recent months, the February report is overshadowed by fresh apprehensions stemming from the US-Israeli war with Iran, which began on February 28. The ongoing conflict has led to significant increases in costs for oil, gasoline, and fertilisers. Oil prices surpassed $100 per barrel before experiencing a slight decline on Tuesday, following President Trump’s comments suggesting that the conflict may soon conclude.

Data from the American Automobile Association (AAA) revealed that petrol prices have surged by over 18 per cent, reaching $3.54 per gallon, which is equivalent to 70 pence per litre, since the commencement of the war. Analysts have noted that while February’s inflation data appeared to be heading in the right direction, the situation in the Middle East has altered the trajectory. The potential for inflation in food prices exists, as the fertiliser market continues to be disrupted.

The latest inflation statistics precede an upcoming meeting of the Federal Reserve’s open market committee, during which it is anticipated that policymakers will maintain interest rates within a range of 3.5 per cent to 3.75 per cent. The CPI report highlighted price increases in various sectors, including medical care, clothing, household furnishings, and education. Observing the financial pressures faced by consumers, the food index experienced a 3.1 per cent increase over the last year.

Stephen Brown, the deputy chief North America economist at Capital Economics, expressed that despite the rise in oil prices, the Federal Reserve can take solace from the fact that inflationary pressures in most categories appear to remain manageable. The Fed’s target inflation rate stands at 2 per cent. Should the current US crude price of approximately $85 per barrel persist throughout the month, it is likely that the overall CPI inflation rate could rise by 0.5 percentage points to 2.9 per cent.